Supermarket Estate Agency – is it a basket case?

Richard Rawlings looks at the practicalities and the problems of supermarket estate agency.

The recent proposal by Vince Cable’s Department for Business Innovation & Skills’ consultation on changing the Estate Agents Act 1979, which would allow non-traditional operators such as on-line agencies and supermarkets to operate outside the scope of the Act, has been met with derision from many sectors, not least estate agents. And rightly so, yet I get the distinct impression that many agents are more concerned about the apparent threat to their business than they are about consumer protection.

Richard Rawlings

One way or another, it would seem likely, in this wonderful country where competition and free enterprise are key drivers of the economy, that sooner or later the supermarkets will indeed be able to offer some form of estate agency service. They managed to get into banking, travel agency, mobile phones and insurance after all so it would certainly seem to be in keeping with their plans for global domination. It’s not if, but when.

Likewise it will not be long before a serious ‘Private Seller’ portal gets the funding to hit the market with a significant offering direct to the public. Again, not if, but when.

The question is, in the event of these two scenarios become a viable reality, what would happen to ‘traditional’ agency as we know it? Are these apparent threats to the status quo going to cause massive fall-out on the same scale that decimated the high street travel agency industry a decade ago? Or would it force us to harness an opportunity that several agents are already embracing?

Stack ’em high

Firstly, the threat! The nature of on-line or private seller/DIY agency platforms is such that there are some pretty obvious downsides to the client experience who might choose to go down this route, eg no trusted professional to advise on correct pricing, staging or marketing; no agent with a finger on the pulse of the market to advise about immediate demand in relation to other stock currently available, lack of skilled negotiator to facilitate the sale, prompting buyers to offer and then seeing the sale through to completion, possibly getting involved in various chain transactions along the way.

Of course, it may be that a supermarket style agency will offer to cover at least some of these bases, but would they have the clout, gravitas and experience of the established professional up the road? Assuming the supermarket agent will want to stack ’em high, sell ’em cheap it is unlikely that they would be able to dedicate the time resources we all know is required to give a professionally attractive level of service.

Speaking of stack ’em high sell ’em cheap (because that is the focal drive of most supermarkets) this model simply could not work in the current climate as the volumes are too low to be able to stack anything! And what sort of clients would they attract? Probably clients who are more interested in the low fee than they are in actually selling. This is not the sort of client you want as they are the type of people who also want a stupid price (especially with nobody to advise them otherwise). Even if the seller was lucky enough to find a buyer stupid enough to pay their inflated price they are just as likely to say ‘thanks but we’ve decided not to sell after all!’ Who needs that type of client? Cheap fees attracts low-value clients.

The selling game

However there is one overriding reason in my view as to why the full service agent will survive. It is so simple that it is often ignored. It’s about proactivity with buyers based on an understanding of three observations:

Most agents would agree that a buyer is unlikely to buy the specific house about which they initially enquired from a For Sale board or ad. In fact my own research suggests that well over 90 per cent of buyers registered with a given agency will fail to buy through that agency. One of your properties drew them to you, but they bought elsewhere.

We also know that people typically need to see an average of about 9 properties before they feel ready to buy. This is because, far from “there’s one special house waiting for me” people actually buy by comparison with others that are available at the time.

The eventual property that a purchaser buys is very likely to be quite different to their original desired specification. It may well be a bigger property in a cheaper area and there is a 70 per cent chance that they will pay 20 per cent more for it than they originally budgeted (source RICS). But they bought it because the agent showed them a property they loved, that they might not otherwise even have seen.

Bringing these three observations together demonstrates that most buyers need the prompting of an involved agent to help them make a buying decision which without that agent’s involvement they might never have made. In other words, an ad or board generates buyers – the key resource a vendor needs. But those buyers will only buy the vendor’s property when the agent uses their skills to understand, interpret and persuade the buyer, based on a working knowledge of the psychology of compromise and relative buying decisions. The buyer will buy – but not the house about which they first enquired – that was just the bait!

The board game

This is why private signs never work and why most people who try to sell a property themselves end up selling via an agent. Even www.ForSaleByOwner.com founder Colby Sambrotto couldn’t sell his $2.15 million apartment in New York via his site but sold it through a traditional agent to and paid six per cent commission (Source Mail OnLine). Indeed, one might expect in the USA, where fees are so much higher, that there would be a higher proportion of people selling privately. Yet the number of private sales has declined steadily from 20 per cent in 1987 to just 11, half of which are ‘in-family’ transactions. And the statistics, based on a survey of 7,800 sales, suggest that private sellers in the US typically achieve 16 per cent less for their home than those sold using an estate agent. (NAR).

Add to this the fact that vendors are the last people in the world who should be allowed to show their house to prospective buyers. Their emotional attachment prevents effective negotiation and their lack of understanding of the processes involved can kill a sale, so things begin to look pretty bleak for Mr DIY. Even worse – he now has an Asda board outside his property! What better way to devalue a home?

As I have long argued – people don’t buy ‘cheap’ – they buy perceived value. If you allow yourself to become a commodity then you only have yourself to blame when you lose an instruction to Tesco. Now is the time to recognise the value in elevating your agency using personal boutique principles, as some hotels and indeed travel agents have embraced (I love my travel agent, Freddie at Dial-a-Flight, because he provides a reliable, flexible, informed and enjoyable experience that I simply cannot get online). You’ll be able to charge much more (probably double your current rate) which is just as well if some of your prospects are fool enough to try to sell through Sainsbury’s (but then they’ll hear about the difference and come running back anyway!). It’s all part of the evolution of our wonderful industry. But why wait until it actually happens – why not imagine it already has!

Richard Rawlings is the PROPERTYdrum B2B Awards Estate Agency Trainer of the Year 2012.